Outsourcing - Pros and Cons
The current trend amoung U.S. companies to ship IT jobs overseas hurts American workers. What is being touted as so-called savings incurred by outsourcers is simply not equal to the cost for U.S. based workers. Instead CIOs within the U.S. should be aware of and searching for financially sound alternatives to the practice of outsourcing. They certainly do exist.
The problems associated with offshore outsourcing are profound and complex, but the most obvious ones - like security issues, language barriers and time zone differences -- can only lead to the ultimate conclusion: Offshore outsourcing is not as practical or as profitable as it's represented to be by those who are proponents of the practice.
A closer look at the depth of the outsourcing problem is presented by the following details:
- Gartner Inc. predicts that 40% of companies with revenue of more than $100 million will be trying to use outsourcing by the end of 2004.
- Gartner also predicts that 1-in-20 IT jobs will be heading overseas by the end of 2004.
- Forrester Research Inc. has projections indicating that more than 3 million U.S. white-collar jobs will be lost due to offshore outsourcing in the next 10 years -- a half-million of those in IT.
- Foote Partners LLC finds that the overall premium bonus pay for certified IT workers fell over 4% in the first half of 2003 and about 6% over the entire year. They also found that a great deal of this money is being used to cover the costs associated with offshore outsourcing.
Many people claim that the current outsourcing trend can be attributed to a natural shift in the job market and should be expected in a capitalist society. Proponents say that the jobs lost by U.S. employees will eventually be recovered by natural market forces and improvements in the economy, which will result from the savings generated from outsourcing.
In the real world: Skilled American IT workers are being forced to switch careers and/or take lower paying jobs in their field.
Additionally, even if the outsourcing trend can be accurately described as a "natural market shift", there are no guarantees that these jobs and the previous wage rates will eventually be recovered. Historically, we didn't see much of that form of recovery taking hold after thousands of U.S. manufacturing jobs were sent overseas in the 70s and 80s. Back in that era, the loss of relatively high-paying, blue-collar jobs hurt that segment of the work force, and real wages for the bottom 25% of the work force were gone forever.
Those highly touted savings associated with outsourcing jobs to places like India and China really aren't as substantial as some would like us to believe. There are tremendous costs in the deployment and management of the infrastructure, and the learning curve for the technical training of overseas employees is showing itself to be problematic and longer lasting than expected.
All other things considered, offshore outsourcing also contributes directly and indirectly to serious problems related to the bottom line. Although there are a multitude of real problems, the ones that need to be prioritized are:
- IT security: How can we really assess the risks posed by offshore workers. Potentially there is no way to avoid the loss of intellectual property and business-process secrets.
Specifically, China, with no laws to protect U.S. based business secrets and intellectual property, is already suspected of having a major industrial espionage program which siphons off the good stuff from U.S. technology. - Business continuity: Many U.S. companies are looking to outsource their IT labor to Southeast Asia and the Middle East. How can daily operations be assured in these countries where an armed conflict could halt offshore operations.
- Customer backlash: Customers are already uncomfortable with the changes being made and seek reassurance that their data is safe, even though it is being maintained thousands of miles away in a nation that may be unstable at any time.
At this point, options and replacements for offshore outsourcing need to be looked at. Because choices are available where skilled American workers can be utilized, the companies interested in domestic outsourcing alternatives can find ways to realize financially sound business practices as well as keep U.S. workers employed. In the humble opinion of this author, the CIOs who examine these alternatives will find what they are looking for. And the Americans who have those jobs will remain the highest-quality workers and the most successful at generating profit for their employers...of any employees in the world.
Part 2 - For Offshore Outsourcing
Some Americans don't believe that offshore outsourcing is bad for this country. They seem to be convinced that we can be strengthened as a nation if we are forced to compete in the global economy. Although the statistics on offshore outsourcing are looking pretty grim for the U.S. worker, they feel the way they do because they are sitting at home watching the news on a Japanese-engineered television, wearing clothes that are made in Malaysia or Thailand. They are thinking that it's hypocritical to demand that computer hardware and software should only be made in the USA.
To these folks, offshore outsourcing looks like a smart business strategy. A way to get the job done for less money by:
- reducing and controlling company operating costs
- freeing up internal company resources for more important purposes
- improving the company focus and resultant productivity
They consider that what is even more important than the welfare of their employees...is making money. Lots of it. To them, companies who make lots of money are healthy companies. Healthy companies bring more money back into the economy, which strengthens the economy, which creates more jobs.
The second reason that some people feel that offshore outsourcing is good...is that it's not good for us to get too comfortable. If we get too comfortable, then we get too weak. And a weak culture can't compete with other people around the world.
They believe that, as a workforce and within our industrial interests, we'll grow and expand our skills and by doing so, avoid becoming stagnant. They want us to push our boundries and become more competitive. They want us to remember that when the automobile industry was being threatened by foreign manufacturers, U.S. automakers were forced to build better cars than ever before. Eventually, factories were reopened and jobs were created. America was once again a legitimate competitor in the auto industry.
Even though Americans are hurting in these tough economic times, the proponents of outsourcing think that U.S. businesses need to stay competive, and that outsourcing offshore will help to accomplish that. They feel that their fellow citizens should push harder, do better and create more.
If being an American means all of that, and if we truly have freedom in this country, we should be able to decide and then choose the right path. What do you think?
posted by PABlo Bley aka Paul Alan Bley at 11:08 AM
5 Comments:
I have been laid off, well, quite a few times. What did I do? I retooled, I thought different...being hungry makes you do that. Whose fault is outsourcing? Companies? Government? The third world?
What to do about outsourcing? Complain? Worry? Pass laws?
That is not the answer, the answer isn't a quick fix, it isn't a campaign slogan. The answer is not being average...The Average Joe story makes me sad. Sad because I think mediocrity and average is what kills the spirit of man.
Quit looking as the cheese is gone rather that is is being moved. America has so much oppertunity, shit we all do, we are limited by our own belief systems first. Don't limit! Accept move on- do better!
-Kevin
I would rather be ashes than dust!
I would rather that my spark should burn out
in a brilliant blaze than it should be stifled by dry-rot.
I would rather be a superb meteor, every atom
of me in magnificent glow, than a sleepy and permanent planet.
The function of man is to live, not to exist.
I shall not waste my days trying to prolong them.
I shall use my time.
-Jack London
This also applies to me, I have now been outsourced twice. Which unfortuneatly has FORCED me to look for a job with a different company. I know the job that I just accepted will NOT be outsourced!
If I had stayed with the highest outsourcer in the US "Convergys" I would have had to take a $1.00 pay cut and lose 5hrs per week, just so the CEO could pocket more profits.
WHAT CAN WE DO TO FINE THESE COMPANIES FOR OUTSOURCING US JOBS???
If you are going to be based in the US you should keep jobs in US. When will this stop? When there is noone in the US that can afford there product because they have no job to purchase anything!
WHOEVER SAYS OUTSOURCING DOESN'T HURT THE US ECONOMY IS NOT PLAYING WITH A FULL DECK!!!!
HELLO PEOPLE---NO JOBS POOR ECONOMY CUZ NO ONE HAS MONEY TO SPEND ON EVERYDAY ITEMS LIKE FOOD, CAR, RENT, UTILITIES!
IT HURTS US ALL IN THE LONG RUN!
I think outsourcing is inevitable, just as was the shift to over-seas manufacturing in the '70s and '80s. As the article shows, it will not necessarily hurt us in the long run, we'll just find different jobs for the previous call-center techs to do. The outsourcing companies cannot be 'fined' to make them stop. In order for a fine to be an effective counter-measure, it must be costly enough so that it's more expensive to pay the fine than they save in outsourcing costs, and it must be enforcable. It would do no good if a fine was levied and then the case was tied up in court for ten years. Anyway, laws will never be passed that punish companies for outsourcing as long as our Congresscritters remain bought by those same companies.
The only way they can be effectively fined is if people 'vote with their pocketbooks' and do not buy products or services from companies that outsource. However, Americans as a whole love cheap products and services, so getting sufficient boycott support together may be an exercise in frustration.
As an alternative, at least as far as the outsourcing of tech support specifically goes, you could educate yourself about computers so that you don't have to call the tech support line as often.
Education is also good in that it will allow you to pursue (or *make*) the high-paying, high-skilled jobs we want. Many new fields will open up to take the place of old ones, in computers as in manufacturing. There were people whose jobs were replaced by robots on the auto assembly line, but other people had to design the robots, and improve them, market them, transport and program them. Tech support may be going overseas, but people will still be needed here to program computers, and use their creativity in interactive designing, and work with computers, customers, and companies hands-on, something not possible to do over a 4000-mile telephone line. There are new fields such as bio- and nano-technology that will demand a greater level of education and creativity in finding new applications that pertain to American society that will not be easily outsourced.
~Sam
IT outsourcing is not a good thing at this time.
I say that because of a couple million jobs that have been lost. Companies that outsource can claim that it helps them to profit as much as they want to. But I want to point out some evidence from the real world.
2.2 million people people with mean average income of ~$40K a year, equates to approximately twenty six point four billion dollars in lost tax revenue a year to the federal government.
Once more that's 2.2 million people needing unemployment assistance which roughly equates to roughly eighteen billion four hundred eighty thousand dollars assistance in six months... and I calculated this via California's unemployment benefits which is one of the lowest in the country. Compile this with medical and dental financial assistance... IT outsourcing isn't looking like such a good deal.
To the venture capitalists who still support all of this, the backlash may seem petty. Ok... so they now have to pay a little more for milk or butter.
But for the average working person, this means that they can no longer afford the extra condiment, they have to cut their cable TV, and their children can no longer join after school activities which cost money.
The ultimate end result if this problem is not solved is a single word: INFLATION.
We will once again find ourselves on a lower rung of this 'macroeconomic' solution ladder. History has shown that any major financial influx to foreign countries costs us in the end. Yes, we pay cheaper prices for cars... because we have to. We buy cheaper generic drugs, because we have to. Compare the physical security of a 1965 Buick to a modern day Toyota. Compare the liability of foreign manufactured drugs to US pharmaceutical companies?
IT outsourcing is currently not a good idea... unless those companies are willing to put those profits back into the education of displaced employees who are just trying to get by and support their families.
This is all interesting talk. There are things about this that obviously, none of us can control, and will happen anyways. A few of those things are, the jobs WILL go overseas. The companies WILL make lots of money and the CxO's will get large bonuses. Also, the Indians will pirate software, hack systems, and get what they can out of the deal. They aren't stuipid, they just look at things differently and are fully aware that Americans (comparitivly) are rich. The Indians will play their political games and lie to the clients just so they look good. How do I know all of this? I've been there. I trained a class for 5 weeks and saw all of these things. At first I had a real issue with training someone to take our jobs, but then I realized something. They haven't been able to meet quality targets (Which is Microsoft's #1 measure) for over a year. So I went (gotta do it once eh?) and gave them the quality Microsoft training that I've always received, in the fashion that it's always been delivered. I was laughing inside the whole time because they just don't get it. They think movies will tell you all about americans. Riiiight. I even "fired" a guy for cheating on an open book test. They simply moved him into a later class for the same project. So, I had no worries about training them. Add to that the other unchangeable item, that is that americans hate talking to them. They can't understand them, and they break more than they fix. It's really sad that the companies involved will realize this too late. But there you have it.
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